Eaton Corporation plc (ETN) — Q3 2025 Earnings Call Transcript

Good morning. Thank you all for joining us for Eaton's third quarter 2025 earnings call. With me today are Paulo Ruiz, Chief Executive Officer; and Olivier Leonetti, Executive Vice President and Chief Financial Officer. Our agenda today includes opening remarks by Paulo, then he will turn it over to Olivier who will highlight our company's performance in the third quarter. As we have done on our past calls, we'll be taking questions at the end of Paulo's closing commentary. The press release and the presentation we'll go through today have been posted on our website. This presentation includes adjusted earnings per share and other non-GAAP measures. They're reconciled in the appendix. A webcast of this call is accessible on our website and it will be available for replay. I would like to remind you that our commentary today will include statements related to expected future results of the company and are, therefore, forward-looking statements. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties as described in our earnings release and presentation. With that, I will turn it over to Paulo.

Thanks, Yan, and thanks, everyone, for joining us. I'm happy to report we delivered solid results. From a demand perspective, we continue to see tremendous strength. On a rolling 12-month basis, our orders accelerated in Electrical Americas, up 7%, from up 2% in Q2. Our Electrical Americas backlog grew 20% year-over-year, hitting an all-time record. Demand in our Aerospace business remains very strong as well. We posted order growth of 11% on a rolling 12-month basis and backlog expansion of 15% year-over-year. As a result, our book-to-bill for the combined segments was 1.2 on a quarterly basis and 1.1 on a rolling 12-month basis. As we continued to deliver robust growth in the data center market, our orders accelerated 70% and our sales were up 40% versus Q3 2024. This strong demand picture gives us confidence in our ability to deliver sustained growth and add value to shareholders. Among the Q3 highlights, our adjusted earnings per share were up 8% versus prior year, and our segment margins of 25% hit a quarterly record, up 70 basis points year-over-year. We're also reaffirming our 2025 guidance. Lastly, yesterday, we were excited to announce the agreement to acquire Boyd's thermal business, a global leader in liquid cooling. And I will talk through this in much more detail in the following slides. Olivier and I will dive into Q3 and the full year outlook in just a minute, but first, I'd like to share more details on how we are investing and executing for growth in our operations, starting on Page 4. So earlier this year, I laid out our bold new strategy with 3 pillars: lead, invest, and execute for growth. All 3 are designed to accelerate our growth and create sustained value for shareholders. These 3 pillars also enable us to capitalize on key megatrends we've discussed for the last few years. Today, we will focus on invest and execute for growth. The Boyd acquisition fits squarely into our strategy to invest for growth. Executing for growth involves elevating operations from good to best-in-class. It includes self-help, growing the head, fixing the tail, and controlling our destiny independent from end market developments. Today I'll walk you through a few examples of what we are doing and the results we are starting to see from this strategy. Turning to Page 5. Yesterday, we announced the acquisition of Boyd, the global leader in liquid cooling technologies for critical markets like data centers, aerospace and defense, and industrial. This is a high-growth business playing in a high-growth market, and we expect it to generate $1.7 billion in sales next year at an adjusted EBITDA margin of 25%. This level of sales represents significant year-over-year growth, demonstrating how the business is benefiting from strong customer demand, especially in data centers. The business itself has a large global presence with over 5,200 employees and 16 manufacturing locations. This global presence is critical to Boyd's success as they are able to support customers almost anywhere in the world as they build out their data center infrastructure. Of those 5,200 employees, over 500 are engineers, which is another important part of Boyd's success. These engineers work directly with the customer teams to design the next chip platforms to understand the thermal characteristics of this next generation. And then this knowledge gets translated into Boyd's own designs. Boyd's manufacturing engineering teams are also involved in the design of the cooling systems to ensure the highest reliability and the production can be rapidly scaled to meet customer needs anywhere in the world. This deep application engineering expertise combined with world-class manufacturing and supply chain creates a powerful flywheel for Boyd to always stay ahead of the competition in terms of technology, reliability, and scalability. On Slide 6, we show some market data. As we talked about previously, the chips used to power AI models and other high-performance compute applications are getting more and more powerful. If you look at the data, before the advent of GenAI, the power used in a typical rack was in the 10 to 15-kilowatt range. At this level, you can cool this chip using air cooling, which is a pretty mature technology and has been around for many years. Now, the introduction of more and more powerful AI chips means the power in each one of those racks is just skyrocketing. Take NVIDIA for example. Its GB200 chip unveiled in 2024 uses 120 kilowatts per rack. Fast forward a year to 2025 and NVIDIA's GB300 chip now uses 180 kilowatts per rack. And it's only increasing from there. NVIDIA's Rubin chip is expected to use 600 kilowatts per rack, and its Feynman chip, 1,000 kilowatts per rack. Now, in addition to these higher-power chips requiring more and more electrical equipment, which is a great thing for our business, once you get above roughly 50 kilowatts per rack, traditional air cooling is replaced by liquid cooling. The physics of these power levels require liquid cooling for the chip; otherwise, performance is degraded, chips don't last as long, or they just might not work at all. So all the demand that you are seeing for GenAI chips will drive commensurate demand for liquid cooling solutions to cool those chips. The growth goes hand in hand. Market estimates vary, but we believe that the global liquid cooling market will grow around 35% annually through 2028: just tremendous growth that is supported by long-term underlying factors. And to return to my point from the prior slide, Boyd is the global leader in liquid cooling, which is why we are so excited about this business. With the acquisition of Boyd, Eaton's data center portfolio will now be even bigger than before, as shown in more detail on Page 7. We can now provide solutions for all major power and cooling systems from the chip to the grid. This includes all of our traditional power distribution, power quality, and infrastructure products in the data center gray space. And here you can see our other 2 recent acquisitions of Fibrebond, modular parts; and Resilient Power, medium-voltage substation transformers. In the data center white space, we can provide everything from power distribution units, remote power panels and busway, to racks, enclosures, cable tray, and, in 2026, liquid cooling. And of course, I need to mention our software and services capabilities, which we historically focused on in the gray space and the white space power distribution and power quality equipment only, and now we have added the same service capabilities for liquid cooling, which we view as a really attractive avenue for growth. Truly an impressive portfolio of solutions for data centers. Moving to Page 8. I already talked about how this acquisition bolsters our data center portfolio, and I also want to mention how it aligns with how our customers are thinking about the future data center architectures. Starting from the chip out, there are really 5 main technology blocks that work outward toward the utility grid. There is a thermal management system to handle heat loads, primarily from the chip, but also from other heat-generating assets like storage devices and power supplies. There is white space power distribution and infrastructure equipment to get that power to the racks. There is the grid equipment to distribute, transform, and condition medium-voltage AC power down to low-voltage AC and then low-voltage DC power. There is Eaton assets to connect the data center to the grid. And finally, there is software and services to monitor and manage all these power and IT assets. So with this acquisition of Boyd, Eaton now plays a leading position in each one of those technology blocks. One reason this is important is that we can now offer our data center customers a greater share of wallet. This is important as they seek to consolidate their supply base among a smaller set of stronger, more globally capable players. And the other important reason is that customers are increasingly looking to integrate these various systems to drive increased technical performance and more rapid deployments. This is especially true in data center white space, which is exactly where Boyd plays. So overall, a really exciting acquisition for us and one that we know will allow us to continue supporting our customers today and into the future. Now let's pivot to execute for growth, another exciting important pillar of our strategy. So on Slide 9, these are key leading indicators in Electrical Americas. This segment is clearly the head of our portfolio, and we have an execution plan to grow it even stronger and with increased margins. All leading indicators on this page are proof points of the generational growth opportunity ahead of us. They also show that our team is executing well to capture this growth. The visibility is unprecedented. So let me walk you through what we are seeing. Over the last 2 years, the mega-project announcements have increased a staggering 185%. In the same time frame, our negotiations pipeline has increased 35%, leading to rolling 12-month orders up 23% on a 2-year stack and a book-to-bill of 1.1. For data centers specifically, the 2-year stack of rolling 12-month orders are up more than 100%, and the data center book-to-bill is 1.7. Electrical Americas backlog is up 51% over the last 2 years, of which data center backlog extends over 2 years. On a 2-year stack, Electrical Americas has grown 23% organically, and we think that data centers have grown 104%. So the demand indicators clearly support why we are so bullish for this business. Our position of strength in the Americas keeps resonating across the market. We are proud to have the broadest portfolio of electrical products in the market, to cultivate strong and trustworthy relationships, and to be the partner of choice to co-design the technologies of the future together with our key customers. Slide 10 showcases Electrical Global organic growth journey. Last year, we grew 4%; this year, approximately 7%. We've talked about the focus to increase Electrical Global margins, and we continue to make strong progress. Our 2025 guidance reflects year-over-year margin expansion of 100 basis points. And let's talk about the growth rates in Electrical Global now. Our Electrical Global organic growth is accelerating, up to about 7% in our 2025 guidance from 4% last year. Our 2030 target of 6% to 9% growth for the portfolio assumes about a middle single-digit growth over the period, and we are off to a great start. We are seeing order acceleration, building strong backlog, and are positioned to win for years to come. We've talked about being in the right markets, targeting fast-growing markets supported by secular mega-trends. For example, data center growth is impacting our business globally as governments and enterprises are prioritizing data localization and resiliency, and we are partnering with our hyperscaler customers in various parts of the world. And by the way, all these data centers need power, and we are a key beneficiary in our global utility space as well. We have a broad portfolio with breadth and capabilities leveraged across end markets. All these enable us to win and position us to gain market share on the global front. The strategy is clear, and as you'll hear from Olivier soon, we are booking sizable orders already, which sets us up for strong growth for years to come. Now I will pass to Olivier to walk through the financials.

Thank you, Paulo. I'll start by providing a brief summary of Q3 results. Organic growth for the quarter was 7%, driven by strength in Aerospace, Electrical Americas, and Electrical Global, partially offset by weakness in short-cycle markets, including Vehicle and eMobility. Otherwise, organic growth would have been almost 10%. We generated quarterly revenue of $7 billion and expanded margins by 70 basis points to 25%. Adjusted EPS of $3.07 increased by 8%, which is at the high end of our guidance range. Now let's move to the segment details. On Slide 12, we highlight the Electrical Americas segment. The business continues to execute at a high level and delivered another record quarter on operating profit, and Q3 record margins. Organic sales growth of 9% was driven primarily by strength in data centers, up about 40%. Operating margin of 30.3% was up 20 basis points versus prior year, benefiting from higher sales and increased operational efficiencies. Orders accelerated to up 7% on a trailing 12-month basis, from up 2%. This represents a strong acceleration, with total quarterly orders up sequentially by more than 11%. We are confident that we will have an all-time record level of orders booked in 2025. Book-to-bill remained at 1.1, and our backlog grew by $2 billion or 20% to $12 billion, providing strong visibility for our organic growth outlook. Now I'll summarize the results of our Electrical Global segment. Total growth of 10% included organic growth of 8%, so a very strong performance for the quarter. We have strength in data center, residential, commercial and institutional, and machine OEM. Regionally, we saw high single-digit growth across all 3 regions. Operating margin of 19.1% was up 40 basis points over prior year, driven primarily by sales growth, partially offset by higher inflation. Orders were up 2% on a rolling 12-month basis, with mid-single-digit growth in APAC and EMEA. EMEA orders increased by more than 30%, driven by data center orders, including sizable orders in the Middle East and a large order with a hyperscaler in Scandinavia. This represents strong acceleration with quarterly orders up sequentially 15%. Backlog increased 7% from prior year, while book-to-bill remained above 1 on a rolling 12 months basis. Before moving to our industrial businesses, I'd like to briefly recap the combined Electrical segments' performance. For Q3, we posted organic growth of 9% and segment margin of 26.6%, which was up 40 basis points over prior year. On a rolling 12-month basis, orders accelerated to up 5% and our book-to-bill ratio for our Electrical sector increased to 1.1. This represents continued acceleration with quarterly orders up sequentially by 13%. We are very excited to capture growth from the robust demand with strong margins in our overall Electrical business. Page 14 highlights our Aerospace segment. Organic sales growth of 13% remains at the high end and resulted in Q3 record sales, with broad-based strength across all markets and particular strength in defense aftermarket. Operating margin expanded by 150 basis points to 25.9%, driven primarily by sales growth. On a rolling 12-month basis, orders increased 11%, driven by defense OEM and aftermarket up 16% and 14%, respectively. On a 2-year stack basis, trailing 12-month orders are up 70%. This demonstrates strong momentum with quarterly orders increasing over 9% sequentially. Our book-to-bill for our Aerospace segment remains strong at 1.1 on a rolling 12-month basis, resulting in a backlog increase of 15% year-over-year and 4% sequentially. Overall, Aerospace posted a solid Q3 and remains well positioned going forward. Moving to our Vehicle segment on Page 15. In the quarter, the business declined by 9% on an organic basis, primarily driven by weaknesses in the North America truck and light vehicle markets. Margins are down 160 basis points year-over-year, primarily driven by lower sales and higher inflation. On Page 16, we show results for our eMobility business. Revenue decreased 19% from 20% lower organic, partially offset by 1% favorable FX. Operating loss was $9 million in the quarter. Now I'll pass it back to Paulo to go over the remainder of the presentation.

Thanks, Olivier. Here on Page 17 is our updated guidance for the year for organic growth and operating margins. We are reaffirming our growth guidance range of 8.5% to 9.5%. We'll likely end up at the low end of this range in total, primarily due to market dynamics in our Vehicle and eMobility businesses. We are also reaffirming our margin guidance of 24.1% to 24.5%, with minor revisions between Aerospace and eMobility. Moving to Page 18, here's the outlook for Q4 and our updated guidance for the year. For the upcoming quarter, we see EPS of $3.23 to $3.43, representing 18% year-over-year growth. We see organic growth at 10% to 12%, which is a reacceleration of growth for the company. And for the year, we are reaffirming our adjusted EPS guidance at $11.97 to $12.17, which includes our near-term investments to position us for sustained long-term growth. This represents 12% growth in earnings per share at the midpoint, which I promised you in March. Shifting our perspective ahead to 2026 on Page 19, we provide our view of end market growth assumptions for the year. All in, this equates to about a 7% market growth rate and, with some outgrowth, is consistent with our 2030 organic growth CAGR of 6% to 9%. I won't go line by line here, but this chart shows that we anticipate growth across our end markets with attractive growth for over 70% of our portfolio. In particular, the data center, distributed IT, and electrical vehicle markets are expected to be the strongest, up double digits. We also expect solid growth in the utility end market along with both commercial aerospace and defense. In summary, we continue to see many paths to our sustained growth, and we are confident in our end market positioning to deliver another differentiated year in 2026 of growth and strong shareholder returns. I will close with a quick summary on Page 20. We had a strong quarter, Q3 record revenue and an all-time record on segment profit and margins. We are seeing unprecedented demand reflected in continued order acceleration and growing backlogs. Our strategy to lead, invest, and execute for growth is positioning us to capture generational demand and deliver lasting value for our shareholders. We look forward to welcoming and integrating Boyd into our business and satisfying our customers with a complete solution offering. Bottom line, we have confidence in our guidance to close out the remainder of the year, and we are well positioned as we go into 2026 and beyond. And we remain confident that our brightest days are yet to come. And with that, we are happy to take your questions.

Thanks, Paulo. I will now hand it over to the operator to provide instructions.

So I know orders, maybe you guys don't want to talk about them, but investors certainly do. Maybe we can talk about Electrical Americas LTM orders outlook. Electrical Americas orders continue to accelerate on an LTM basis, I think it was 2% in the second quarter, 7% in the third quarter. So what's your expectation for orders in the fourth quarter and the beginning of '26, if you're willing to talk about it?

Sure. Thanks for the question, Andrew. Based on the orders momentum we had in Q3 and a very strong October in orders, and we also have growth in our negotiations pipeline, we have a lot of visibility into Q4 orders. So we remain very bullish about our orders growth also in Q4. And I say that because we continue to have specific projects that we track in the pipeline that support this outlook that I'm referring to for strong order acceleration of LTM orders into Q4. So we are bullish about orders.

Excellent. And maybe we can talk about Electrical Americas quarterly orders. You only disclose orders on an LTM basis. But I think externally, we do estimate your orders on a quarterly basis in Electrical Americas; I think we sort of came up like mid-20s to close to 30% year-over-year. Is that in the ballpark? And is it close to 30% or is it close to 25%?

Another great question. Based on these LTM disclosures we make, we know that people externally estimate quarterly orders as well. I would say your estimate is in the ballpark, toward the higher end of your estimation. So we continue to see a strong inflection in orders in Q3. And as I just said, we continue to see momentum in Q4. But most importantly, I would like to remind you and the whole team why we are winning businesses at this pace. I think it's important we talk about it. We have this success because we have the broadest portfolio of electrical products in Electrical Americas. We have all the solutions and services. We count on strong channels. And we also have deep customer intimacy, so we co-design future technologies with our customers. This allows us to be a leader in several end markets. I'm not talking only about data centers, but we also lead in utilities, we had very strong orders in utilities, C&I, et cetera. So every investment we make into Electrical Americas actually scales across many different end markets. And as you know, we're expanding our footprint in North America as well to better serve our customers and to continue to capture more than our fair share of the market. At the same time, I would say this, that we are also in the position of strength that we have today and winning all these orders because of the way we intentionally position our portfolio. So we have proven to be disciplined, proven to be nimble, progressive, and we continue to make the right moves to boost our growth. So we believe the best days and years are ahead of this business yet.

And Andrew, as there was a lot of focus also on data center and hyperscalers, the growth on orders in this particular vertical was very strong. In the Americas, close to 70%, same number for Global. And in total for the Electrical sector, close to 70% order growth in the quarter for data center and hyperscalers.

Yes. And I'll just conclude by saying that we are beating every competitor in the market in orders. Part of this is attributable to the portfolio and our sales channels and the relationships. But partially is also due to the fact we are investing in our footprint, and our customers feel comfortable and confident in giving us more orders versus other competitors. So I think that's also a point that I would like to stress.

Well, I'll let others ask how Boyd was going to help you with that.

Paulo, you previously said that AI data centers can get you $1.2 million to $2.9 million in sales per megawatt and that you expect data center growth to be 17% over the next several years. But as you suggested today, Eaton and the market have changed, even since your Investor Day, with the market beginning to evolve toward 800-volt DC power architecture. And you added Fibrebond, and now you're obviously adding Boyd. So can you talk about what total Eaton sales per megawatt within your eventual new portfolio could be? And do you ultimately see the data center market growing considerably faster than that 17%, with Eaton outperforming?

Yes, great question. Let me lead with this. We mentioned to you before that we have the broadest portfolio of power management solutions for data centers. We had it already even before the announcement we made yesterday. But starting with the white space products, the white space is centered around the chips. Moving to the gray space, we have all this power distribution, power quality products, and all the way to the front of the meter where we have our utility grid products. So we have a very extensive portfolio. The recent acquisitions we made, made our position much stronger. As you know, the data centers exist to support the chips ultimately. As these chips become more and more powerful, especially in support of AI workloads as you mentioned, data center operators are moving towards direct current. Why is that? Because direct current offers advantages in terms of reduced power losses, fewer conversions with alternate current, and the ability to offer direct integration with other sources of power just like renewables and battery storage. Eaton is extremely well positioned for this change, not only because today our products touch every conversion of AC and DC in the data center, but also because we have a decade-long experience dealing with DC power in other segments, like machinery, industrial facilities, and eMobility, where we're dealing with DC power for a while. This is another example that makes Eaton unique in this space. The Resilient Power acquisition we made a couple of quarters ago actually accelerates our readiness for DC integration right from the utility feed down to the chips. On your specific question about dollars per megawatt, our range was between $1.2 million to $2.4 million per megawatt, with the lower end being cloud and the higher end for AI loads for the portfolio we have today. With the acquisition of Boyd, we're going to add another $500,000, so it will be close to $3 million per megawatt at the high end of the guide here for construction.

Paulo, that's helpful. And then maybe just for Olivier. Your organic revenue growth in Electrical Americas slowed in Q3 versus Q2. I think the comps are pretty similar. I think you also have more capacity coming on. So can you give us more color on what happened in your end markets? Was maybe residential slower? And I know you have a relatively big implied ramp in Q4; easier comps help. But where is that coming from? Is it data center revenue growth? And how does that translate into '26?

So if you look at Q3 on organic growth for ESA, we had 2 factors impacting our sales to the downside. One, residential being slower in September; and two, some small orders, some orders being delayed from Q3 to Q4. We are confident that we'll catch up in Q4. If you look at the implied revenue guide for ESA, that would be in the range of 17% to 18%. We're confident in our ability to deliver this kind of revenue growth as we're adding capacity.

I want to add to what Olivier mentioned, which is absolutely correct. It's important to put this in perspective. The shortfall in Electrical Americas to the midpoint of the guidance is $80 million. However, when considering the future performance of the business and the overall company, this amount isn’t as significant when compared to the sequential backlog increase we experienced. From Q2 to Q3, the overall company saw a backlog increase of approximately $1 billion, with $600 million coming from Electrical Americas. This is what gives us the confidence that our forecasts are on track. I also want to remind you that last year, we faced a challenging Q4 due to strikes and hurricanes, so the year-over-year comparisons are also relevant in this situation.

I wanted to follow up on some of that Q3 versus Q4 commentary, but specifically more on EPS. So Q3 EPS was up, I guess, 8% year-on-year. You're guiding Q4 at the midpoint up to 18%, above the full year of 12%. So is that just all driven by the Americas seeing stronger organic growth, which you just talked about? Or are there other factors in here that's driving that sharp pickup in earnings growth?

Mainly, other factors. If you look at, first, the tax rate, last year our tax rate in the quarter for Q4 was 17.4%. We are modeling 15%. The 15% is supported by discrete tax items. This is under our control. So that would be half of the difference between the 18% and the 12% for the full year. And the other half is a compare benefit. Paulo mentioned that last year we had the impact of strikes and hurricanes, which impacted EPS and we would benefit from the comparison as well. So between the 18% and the 12%, it's 50-50 of the gap between tax and the compare, Chris.

And Chris, just to add one element to this, just to complete the picture here. If you adjust by the 2 factors that Olivier just mentioned, the EPS growth will be around 13%, which is a little bit higher than the average of the year. So that gives us confidence that we can hit that.

I appreciate that. I'd like to follow up with a question regarding the Boyd acquisition. There seem to be benefits in supplying customers with power equipment for both gray and white space in data centers. It appears that the ability to provide both is becoming increasingly important. I'm curious, Paulo, from your perspective, is selling into both the white and gray space growing in significance? If so, what is the reason behind this? Additionally, is this a significant driving factor for the acquisition?

Yes. No, great question. If you'll allow me, I'd like to give you a big picture rationale on the acquisition, we can deep-dive on this particular topic. We are excited about the data center market. We all know it's growing at a very fast pace. But if you look at liquid cooling in particular, it's growing at even faster pace than the average of the data center market. So you saw in your chart the low point projection of the market is 35% CAGR. So the market will be between $6 billion and $9 billion already in '28. In 2030, we expect the market to be between $15 billion and $18 billion. So it will be a massive market. I told you, I think it's important I get back to that point, I told you last quarter that the white space became much more interesting for Eaton given the power ranges that now also go into the racks, moving from a few kilowatts to a megawatt. This changes everything in the way we design the power solutions, to be more attractive for Eaton to have mission-critical solutions here. And then looking at the cooling portion, there are technical synergies in the way you design the white space from the chip out. That's what we are interested in, converting power and cooling technology and knowledge to come up with better designs for our customers. Then, why Boyd? I would say I would start with this. Firstly, they really have a similar DNA to Eaton, which means that they lead with technology and innovation. Second, they are the market leader, so that provides us with a scaled entry into the market, not the suboptimum assets we saw on the market before. This is a market leader. They have a global footprint, which is impressive, in all 3 continents, and a best-in-class engineering team because they have around 500 engineers and they are the best cooling experts on the market. So we like what we see. We also appreciate the way they sell it because they work through technical sales, meaning they work intimately connected with all the chip companies. Think about the merchant chips like NVIDIA and AMD, but they also work on the captive proprietary custom silicon developers, which are the hyperscalers. They are involved in those development projects for the long run. They know 2 or 3 generations ahead of what is commercial today, what's going to be delivered because they are part of those projects. So talking about synergies here, first of all, Eaton, in our power portfolio, can leverage this connectivity they have with the chip manufacturers and the hyperscalers on their own chips to leverage our power system designs as well. They have the customer intimacy. On the other hand, we believe we can help them grow their co-location, multi-tenant market. We have better access and better relationships than them. We can also help them reduce their cost position given our purchasing power at Eaton. This business is growing really, really fast. This year they're going to reach $1 billion in revenue. Next year they're going to reach $1.7 billion in revenue, which is a staggering 70% growth. We double-checked that during diligence, and their Q4 exit rate is already $400 million, which gives $1.6 billion if you multiply it by 4, making this $1.7 billion plan not only achievable, but there is upside next year. Everything we saw from that angle made us believe that was the right asset to go after. We also know that we keep our discipline with the returns between 200 and 300 basis points, being accretive on year 2. All the good stuff. So the asset is fantastic. I'm really excited about winning this business, especially because we've been working, getting to know them as a supplier first for over a year, getting to know the teams and the technology. We hired independent consultants to browse all the cooling players. All the inputs we got pointed to Boyd as the best option for us. So when the asset came to market, we knew exactly what we wanted to check; we knew what plants we wanted to visit; we had an idea on the talent we wanted to retain. So we were quick. We were fast. And we won by certainty of our proposal, fully vetted by our Board, not necessarily because we were bidding higher than other folks. A great step for us, a great step for the business. We believe that combining these 2 technologies in the future will bring a lot of wins for the company, even though I'd say we didn't need to put much of the synergies into the model to make the math work because the business is growing so fast that it wins on its own merits.

Paulo, maybe just continuing the conversation on Boyd. I'm just curious, when you think about this asset and how long they've been providing liquid cooling or CDU solutions to data centers, maybe help us provide a little bit of a history on that. And then secondly, we're trying to level-set the portfolio of their business that you've laid out on Slide 5. I'm curious specifically, how much is liquid cooling? How much is cold plate? Just any color you can give us on that would be helpful.

Great. So the company historically started by designing cooling systems for aerospace, which is a great place to start because of the very stringent, tough requirements, and tough engineering solutions. They really gained traction there. Once cooling became a reality in the data center space, they migrated to cooling in data centers. You should think about Boyd as over 80% of their revenues are in the data center space and the other 20% are divided between aerospace and industrial applications. So the data center part is growing at a much faster pace, as you know. But the aerospace part is also interesting. We were working on our own projects to achieve exactly that. Now, with that technology, we don't need to continue with those projects any longer in Aerospace. It's also important, but not nearly as interesting when compared to the growth rates that we see in data centers. As you think about Boyd, they are not a cold plate company. They are the cooling experts on the market. When you have 500 engineers and you are embedded into 2 or 3 generations of chips ahead of what's commercial today, you know what is going to happen in the next 5 years, and you are designed in. It's almost like the same behavior we have in aerospace selling. You get to develop something with your customers, you win and you are in the platform. The difference here is that aerospace platforms change every 30 years, while the chips change every 18 months. They are ahead of the curve for the new designs to come to reality, which gives them a lot of advantages. I will explain what I mean by that. When solutions are stable, people will try to copy and do it cheaper. When the design is changing every 18 months, a company cannot catch up with them unless you have a seat at the table and are working with the engineering teams of your customers. That's exactly how they play. So we felt really comfortable with that. They have a wide range of products in the cooling space; they also have systems and capabilities. The way to think about the future of this business is: whatever makes more sense to the customers, they will develop and implement. They will not be fighting for Product A or Product B. They will always be offering the best solution to make the chips work perfectly fine. So that's how they are wired. We love the way they conduct themselves. We talked a lot about the engineering side, but they also have a great footprint with plants in Asia, Eastern Europe, and North America, ensuring cutting-edge lean quality as well. It's a well-run business. We know we can scale; we know we can scale that business, and we will.

Got it. That's super helpful. And then just a quick follow-on question on EA backlog. You've grown the backlog by about $2 billion year-over-year. It sounds like you have an expectation it will continue to grow through the end of the year. Just how are you thinking about 2026 given the strong growth that you're seeing and potentially continuing to see backlog growth in EA in '26?

Yes. So particularly on Electrical Americas, through Q3, we saw this backlog growth of 20%, which includes 9% organically. And on a rolling 12-month basis, our book-to-bill was 1.1, as I said before. We were supported by higher growth in our end markets and also because, as I said before, we are investing and the customers are trusting us. So great results for Q3. As we look into Q4, and as I stated before, we are bullish about orders growth once again in Q4. We see momentum in negotiations in orders, so it's very possible that our backlog at the end of '25 will be up year-over-year at similar growth rates as Q3 was versus last year. So there are indications that could be possible. The book-to-bill could also improve beyond 1.1 as a consequence. For '26, the second part of your question, I would say it's a bit too early to call. We will have more to share when we provide our guidance in February. One thing is for sure, I want to share with you. We will start 2026 with record backlogs and enormous visibility into the fiscal year. That's a guarantee.

Just want to change gears a little bit here and maybe talk about Aerospace. Perhaps you could just unpack the drivers of the Aero performance and, in particular, the margins, and obviously, very strong leverage there. So just wanted to understand what's driving that.

Okay. Great. Well, you probably remember, Nigel, that we shared in March our plan for the Aerospace business to go to 2030 and to reach 27% margins. John Sapp explained that to the whole team. I will start by saying that we are on the right track to deliver on our 2030 commitments. I see great performance by the Aerospace team this year that supports my statement. I'll give you more detail on that. Firstly, I want to say, which is really important for this business, they landed historical wins on new platforms, particularly defense platforms. These historical wins will give us a lot of revenue for decades to come. So the long-term view of this business is fantastic and incredibly strong. For the short term, I'm again proud of the team as they keep ramping volumes consistently and improving customer satisfaction while they do that, which is also great. If you compare this business last year, we grew 10%, and this year we're yet again raising organic growth guidance up 100 basis points to the midpoint of 12% this year, which is a great year-over-year performance. On the margin front, we start to see upside from some of the key strategic levers, which are driving already 70 basis points of margin expansion. I would say we are on track to reach the 27% margins we promised for 2030.

One additional statistic, Nigel, if I may. The 12% revenue guidance for the year will also assume a backlog growth. So we're not flushing the backlog. We are growing faster than prior year and adding to the backlog. As a reminder, the backlog in Q3 was 15% higher than it was a year ago.

Yes, that's great color. And then second was margins. There's a lot going on in the Americas margins: price, tariffs, investment spending, etc. Obviously, a lot of volume leverage as well. So just wondering how we should think about incremental margins in 2026 and how that all plays out.

Yes. I will start and then I'll allow Olivier to provide more color. It's too early to talk about 2026 margins, but I think Q3 was a good proxy where the top line didn't come to the levels expected and the business could produce very good margins. Why was this possible? First, because we had a backlog we could deliver on. Second, the team now covers for all the tariff costs and is not a drag on the margins. So it's not only recovering on a dollar-by-dollar basis by the end of the year now, but also it's not dilutive to margins, which is great news. Where are we now in Electrical Americas? That's exactly the discussion we should be having. Think about a business that has been growing consistently with the same portfolio of plants, and all of a sudden, now they're expanding 12 facilities simultaneously. So 6 are built and they start to ramp. Other 6 are in the building phase. So there's a lot of activity in that business, preparing us to start a new S curve, a new chapter of growth for the business. That's the way to think about Electrical Americas. Our customers trust that, and it's proven by the orders they keep giving us, which is just fascinating to see that quarter after quarter. That's why we believe the best days and years are ahead for this business.

I would also add that to your point about tariffs, we have been mitigating our tariff cost while also improving operational efficiencies. However, we do expect some of those pressures to continue as we ramp up capacity in '26.

Hey, a lot of ground covered. I just want to come back to Boyd one more time, at least for me. Just a little more color sort of on some of the deal assumptions. Paulo, that was very helpful, giving us the $1 billion to $1.7 billion. That was part of my question. But this 25% margin that you're pointing to, is that their organic margin? Is that kind of comparable to Eaton accounting? Or do you have some synergies baked into that number?

No. This is their margin. Olivier can provide clarification.

This is their margin, yes.

And then so if you think about synergies, you alluded to revenue synergies working together. I would assume you're maybe not ready to totally kind of give us a number on that, although the $500,000 of content certainly is a starting point. But how about on the cost side? Is there a cost story here too? Or coming out of private equity, maybe these guys have a lot of capacity they need to add or something to kind of keep up with this demand. Should we just think about kind of investment for growth as opposed to kind of cost-related synergies as part of the earnings algorithm?

Yes. We have both. I would say this, and I'll go back to the deal criteria so it's clear that we remain disciplined. This year is delivering between 200 and 300 basis points over the cost of capital; it's going to be accretive in year 2. I said before, we didn't need to use the synergies to make the business case work given all the growth that they have in the pipe. If you look at the synergy, the multiple after the synergies, the multiple goes down to high single digits. So there are synergies that we can play here. The quickest and easiest to implement is, on the cost side, we look at what they buy and we compare it to our purchasing volumes and our purchasing power; we believe we can help them a great deal. The other part on synergies regarding sales that we see as a great opportunity is also being worked on. But once again, we could even take this out of the model and the math still works fine. Olivier can give you more details on how we're going to run the financing, etc. We also checked our leverage point, and we believe that after the deal, we're going to still be at the same credit rating as today. So that would not be affected. You want to add anything, Olivier, to it?

Nothing more to add.

So just to kind of clarify in the fourth quarter here, so I guess what you're saying with the EA revenue is that the residential stuff remains weak and some of these other nits and gnats that were onetime issues ship. I think the midpoint of the prior range was higher than 18% revenue growth. Is that basically the residential impact in 4Q?

Yes. So you got this correctly, Steve. I'll go back. If you look at the sequential revenue growth for Electrical Americas, around $200 million, we are confident; we check plant-by-plant what needs to happen, and this is around 5% to 6% sequential growth. This is possible because new capacity came online in Q3, and we are ramping up as we speak. In terms of the miss you mentioned, which was half of the miss to the middle of the guidance on growth, you should think about this as being less than 1 day of sales, right? Think about the whole quarter and they missed less than 1 day of sales. This is going to be a carryover for us in Q4. So that product is in the pipe; it was on the shop floor and now becomes a tailwind for Q4. This is one element for you to consider; that's why we believe the strong double-digit growth is possible, having this carryover from Q3 that we were working on and couldn't deliver. The second thing was that last year is the easiest comp of 2024, with growth only being 9%. We believe it's possible to achieve that.

Yes. Also, I want to emphasize that the residential market is highly volatile. Although we have seen fluctuations, we expect that it will stabilize as we advance into next year.

Just want to follow up on capacity investments, and particularly for Boyd. We talk about the 70% growth expected for '26. How much capacity do they need to add? One of their key competitors announced they're doubling capacity. You said Boyd has 16 plants. Just what's in front of them in terms of capacity? And really, what are you solving for? Is there a backlog that you have in mind that you don't want to exceed in terms of how much capacity you'll be adding?

This was a key part of our diligence and we double-checked that. They are ramping 2 large facilities: one in Asia and one in North America. They have ordered; they have equipment in place; they are hiring people at a high pace. All the long-lead items, the long-lead capital goods, machinery, etc., are ordered already. So the capital plan is well underway, and whatever is required for '26 and '27 is already in the pipe. We feel really good about their capacity to ramp because we saw those plants; we saw the exit rate now in Q4 is already in the ballpark of the revenue numbers for next year. They are investing and are growing. The investment is already in their plan. Over time, it could well happen, as it's happening with Fibrebond, that we can accelerate and augment their wins, and then make a decision later on to invest even further. But today, it's not required. It's all in.

That's really good to hear. And then just a follow-up, we appreciate the update on the mega-projects. You all have been really good about providing some data points given your perspective. Can you talk about the number of projects you see today and your win rate?

Yes, that’s a great question. We initially planned to have a slide here before closing the deal, but we had to remove it. Hopefully, I can bring it back next quarter. We had another strong quarter with record announcements again. In Q3, the mega-project announcements totaled $239 billion, which is an 18% increase year-over-year. Sequentially from Q2, that’s nearly a 50% growth. It was an exceptionally strong quarter. Regarding the composition of those mega-projects, we expected a significant portion to be data centers, which is indeed the case, making up almost half of the total. The other half consists of projects outside of data centers, which is fantastic as it diversifies the market. Looking at the data from January to September, we had an average of $65 billion in announcements per month, while the total starts for the first nine months were around $100 billion. This indicates there are many projects yet to come to market, and we have ample opportunity ahead. Currently, our backlog is approximately $2.6 trillion, up 29% from last year, which is remarkable. We have secured about $2 billion in orders and are actively negotiating roughly $4 billion in additional products and solutions. Our win rate is around 40%, which is quite strong. Given these figures and comparing our potential against what we’ve booked so far, I hope you arrive at the same conclusion as I have: these large projects typically take 3 to 5 years from announcement to generating revenue for us. This signifies a significant tailwind for sustained market growth over an extended period.

You could also triangulate those large projects with what the announcement from the hyperscalers. During the earnings season, the top 5 in the U.S. announced a growth in CapEx '25 to '24 by 67% year-on-year, and then '26 versus '25 about 45%. All those numbers are higher than what they announced the prior quarter. Many triangulation points.

That's a good point. Thanks, Olivier. We are over time, so let's go for the last question, please.

Congrats on the numbers, et cetera, or the outlook, I should say, is very encouraging. Just a couple of cleanup items because I think you've touched on 99% of what matters here. But the CapEx, I think you were guiding to kind of, call it, $1.2 billion this year and next combined. Are you at the point where you may need to upsize that '26 CapEx number given the order book?

So we will be higher in CapEx in '26 versus '25. We have said that consistently. We think we're going to have leverage that you go back to the question from Paulo on the CapEx we have deployed in '25; '26 would be a peak, and then we'll go back to the historical CapEx as a proportion of revenue you had at Eaton.

As of '27, right?

As of '27, correct.

We are actually accelerating our hiring and our ramp up in the existing expansions we have already announced.

Okay. That's helpful. And then, guys, just again another cleanup item. Where do we stand right now with channel inventories? Are they back to kind of more normal levels?

Yes. So we have a closer look with our distributors. I think residential reached bottom, in my opinion. We see other markets that are coming back really nicely. The distribution IT, for example, recovered, not only in North America, but also in EMEA, with double-digit orders growth. Our utilities business came back very strongly now as well in terms of orders; we saw strong double-digit growth. So this is coming back. The residential market is still down; distribution IT is back. Utilities had very strong orders, which we didn't have an opportunity to cover, but the utility business did really well in orders in Q3.

Thanks, guys. As always, the IR team will be available to address your follow-up questions. Thank you for joining us. Have a nice day, guys.

Thanks, everyone.